Question

Mastery Problem: Activity-Based Costing WoolCorp WooCorp buys sheep's wool from farmers. The company began operations in January of this year, and is making decisions on product offerings, pricing, and vendors. The company is also examining its method of assigning overhead to products. You've just been hired as a production manager at Wool Corp. Currently WoolCorp makes two products: (1) row, clean wool to be used as stuffing or insulation and (2) wool yarn for use in the textile industry. The company would like you to evaluate its costing methods for its row wool and wool yarn. Single Plantwide Rate WoolCorp is currently using the single plantwide factory overhead rote method, which uses a predetermined overhead rate based on an estimated allocation base such as direct labor hours or machine hours. The rate is computed as follows: Single Plantwide Factory Overneed Rate = (Total Budgeted Factory Overhead) + (Total Budgeted Plantwide Allocation Base) WooCorp has been using combing machine hours as its allocation base. The company would like to consider activity based costing. In order to understand their current system better, you evaluate WooCorp's current method of costing for raw wool and wool yarn. The production staff has compiled the following information for you on the production of 450 pounds of either raw wool or wool yarn Budgeted Factory Factory Overhead Type Overhead Sorting $25,000 Cleaning 38,400 Check My Work Previous

Answer 1

1	Single Plantwide Factory Overhead Rate	$652	Per combing hour
	($65,200/100)
		Raw Wool	Wool Yarn
2	Allocate factory overhead cost	$45,640	$19,560
3
	Activity	Activity Rate
	Machining	$6.40	Per Sorting Hour
	($25,600/4,000)
	Design Costs	$6.40	Per unit of cleaning machine power
	($38,400/6,000)
	Setup	$12.00	Per hour of combing machine use
	($1,200/100)
		Raw Wool	Wool Yarn
4	Sorting cost	$5,120	$20,480
	Cleaning cost	$11,520	$26,880
	Combing cost	$840	$360
	Total	$17,480	$47,720
5	Activity-based costing